The Grist Mill Has No Debt

Multiple Choice

The Grist Mill has no debt.The firm has a total market value of $245,000 with 10,000 shares of stock outstanding.The firm has expected EBIT of $14,000 if the economy is normal and $17,000 if the economy booms.The firm is considering a bond issue of $49,000 with an attached interest rate of 8 percent.The bond proceeds will be used to repurchase shares.The tax rate is 34 percent.Compute the EPS after the repurchase for both a normal and a boom economy.What is the percentage increase in EPS if the economy booms rather than being normal?

A) 18.78%
B) 21.42%
C) 19.84%
D) 29.76%
E) 19.29%